Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

Traders Poll

Would you feel better if the Chicago Stock Exchange were purchased by U.S. firm or consortium rather than a foreign one?




Free Site Registration

September 22, 2005

Much-Criticized ITS Rides into the Sunset

By Peter Chapman

Also in this article

  • Much-Criticized ITS Rides into the Sunset

The ITS is on life support. The nation's stock markets, in the wake of Reg NMS, intend to scrap the nearly 30-year old Intermarket Trading System (ITS). In its place, they plan to use proprietary networks or contract with independent vendors to handle order routing in exchange-listed securities.

The nine members of the ITS may or may not agree to participate in a temporary consortium-based network a sort of ITS II as an intermediary step to fully private networks.

"Our merger with Archipelago will facilitate our use of their routing technology," Bob McSweeney, the New York Stock Exchange official in charge of competitive position, told Traders Magazine. "Our objective is to expedite our exit from the ITS Plan as soon as possible."

One trading center already has announced its exit. Nasdaq said last month it would withdraw from the ITS Plan in 2006 as soon as Reg NMS goes into effect. Nasdaq intends to make its Brut routing network its primary method for transmitting exchange-listed orders to other trading venues.

Another ITS member, the Chicago Stock Exchange, is making plans to plug into a vendor-supplied network, Traders Magazine has learned. "In all likelihood, we will contract with a private party on our own," David Brodsky, the CHX's chief counsel, said. "It involves a joint venture with a broker-dealer because you must have broker-dealer membership to do that."

The Philadelphia and Boston stock exchanges are also expected to align themselves with network providers and brokers. Both regionals recently took in millions of dollars from new investors, much of which will go to cover technology upgrades.

Various vendors are said to be likely candidates to provide the wiring that ties the nation's equity markets together. IBSN, of Colorado, is already carrying outbound orders from the National Stock Exchange. Other possibilities, sources say, are NYFIX, REDIPlus, Sonic, Lava Trading and Sungard Trading Systems/Brass.

"Competition is coming," Colin Clark, president of IBSN, said. "These [ITS] services have been priced like a utility. But we see the regionals waking up to the fact that the market has changed. They have to be run as for-profit entities and the days of the feudal utility are over."

The ITS Plan, both a message routing mechanism and a governing body, was established in 1977 to ensure exchange specialists and third-market dealers could route orders to each other. Members of the ITS Plan include the country's seven stock exchanges, Nasdaq and the Chicago Board Options Exchange.

Most traffic in so-called ITS commitments (orders) flows into the New York, where most trading in NYSE-listed shares occurs. Considerably less flows out of the New York. Still, the New York has borne the lion's share of the ITS' annual operating costs.

The New York has hosted a series of meetings this year with the members of the ITS Plan in an attempt to gauge support for a new consortium-supported network. The system would be run by SIAC, the operator of the ITS and a subsidiary of the New York and American stock exchanges. It would exist for no more than two years, giving all members enough time to establish their own linkages to each other.